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Dooms day in Europe

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  1. Introduction
  2. The housing bubble in the American financial crisis
    1. The role of the banking system in the formation of the U.S. housing bubble
    2. The role of the banking system in the U.S. financial crisis
  3. From the U.S. financial crisis to European crash January 21, 2008
    1. From US crisis to crisis: European banking
    2. From the U.S. crisis to the European stock market crash of January 21, 2008
  4. Conclusion

The advent of globalization has significantly reduced the international trade barriers. However, we have fallen prey to a host of other related issues as well. One major issue is the recent financial crisis which was triggered off by the stock market crash of January 21, 2008. It started off with the financial crisis in the United States, when interest rates soared and households failed to repay their debts. Since then, banks have witnessed financial power failures, thus causing a contagion to investments.

This lack of financial power has created excess liquidity. The crisis spread across the world due to the interconnected factors existing among nations. As a consequence, it led to the instability of trade between the European nations and the U.S., slowdown of growth and uncertainty resulting from the collapse of stock indices. This was also triggered by the similarity between the U.S. and the European housing markets.

[...] Sub- prime mortgages refer to creating loans that are in the riskiest category of consumer loans and are typically sold in a separate market from prime loans. This credit risk was granted under certain conditions with a variable rate of interest. These rates were less in the initial years and then fixed after two years. This system has two advantages; the financial institutions improved their track record and the households could acquire a property. Thus, these credits were granted with increased risk initially. [...]

[...] in the same period. Countries like Spain, the United Kingdom and Ireland were the more affected ones. Moreover, some EU countries particularly Denmark, Sweden, Germany and the United Kingdom also implemented a system similar to sub-prime, but at a lower level The consequences of this system led to the rise of uncertainty in European banks and therefore shareholders withdrew resulting in aggravating losses. As the two super powers, the US and Europe are dependent on each other through the euro area, bank instability spread very quickly and pushed the EU towards a banking crisis From the U.S. [...]

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